Off-Balance Sheet: Freddie Mac Pulls Back

Freddie Mac said yesterday that it would tighten lending standards and stop buying loans granted to borrowers with subprime credit records...

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Freddie Mac (FRE), one of the biggest providers of funding for U.S. home mortgages, said yesterday that it would tighten lending standards and stop buying loans granted to borrowers with subprime credit records.

The move comes as subprime mortgages are beginning to fall out of favor on Wall Street and concerns about the deterioration of the subprime market weigh on financial stocks.

Take a look at this graphic from today's New York Times:

So, as Freddie Mac beats a hasty retreat from lenders and originators who play fast and loose with standards-such as allowing loan-seekers to simply declare their income without providing documentation-I realized that, with all this talk about Freddie Mac, no one has given any thought to another important player.

How is Bernie Mac planning to change the way he does business?Bernie Mac, who was so broke at the time of his first stand-up comedy gig that he had to borrow a suit from his brother, has become one of the most successful entertainers in Hollywood. With 28 feature films under his belt and several Emmy and Golden Globe nominations for "The Bernie Mac Show", the man is not hurting financially anymore. Translation: every relative, friend, friend of a friend, friend of a friend of a friend, friend of a friend of an acquaintance of a friend's cousin's ex-brother-in-law's mother's neighbor has been coming to Bernie Mac with an outstretched palm ever since his first big payday.

Will Bernie Mac be tightening up his requirements when someone comes to him looking for a loan, in the same ways Freddie Mac will be?

Through an industry contact closely linked with Bernie Mac's housekeeper, I was able to gain some insight into how Bernie will be altering his lending practices in the future.

Bernie Mac will now insist on a W-2 or a current pay stub before lending money to anyone, whether it's a request for cigarette money or help with a down payment on a house.

Bernie Mac will no longer buy bonds backed by subprime loans. He is now interested only in U.S. Treasuries and AAA-rated Munis. Nothing less.

Bernie Mac was just as alarmed by the recent surge in defaults on subprime loans as investors and politicians were, and urged Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, and Sen. Christopher Dodd (D., Conn.) to insist that bank regulators crack down on these types of loans.

Bernie Mac will carefully determine whether or not potential borrowers can cope with the higher payments likely to kick in when rates are reset after two or three years. This will likely affect Bernie's cousin Shawon, who regularly borrows "walking-around money" but has never even made an attempt to reimburse Bernie.

Bernie Mac will begin collecting borrowers' taxes and insurance payments and putting them in escrow, a common practice in prime lending but one not generally adhered to in the subprime world.

Bernie Mac will no longer be loaning any money to his daughter Je'Niece, who is 32 years old and has a Masters Degree in Mental Health Counseling. Bernie believes she should be self-sufficient, that he has done his duty by paying her way through college and graduate school, and, with a stellar credit score, she should have no problem getting loans in the first place.

As usual, I was interested in our own Kevin Depew's take on Bernie Mac's new lending parameters. I caught up with him in front of MVHQ on Third Avenue, where he was eating a can of Dinty Moore hash with a seafood fork.

You're all hot and bothered about Bernie Mac and this subprime lending thing, but what about Elly Mae?

Look, I'm from Kentucky, Jed Clampett. Anytime somebody loads up the truck and moves to the Hills of Beverly, I can relate.

But that has nothing to do with anything I'm asking you.

Oh, no? Did Bea Benaderet not play Cousin Pearl Bodine?

She did, yes. Yes, she did. But can't we just talk about subprime loans and real estate loan delinquencies?

What, like how 2.11 percent of residential loans held by banks were delinquent at the end of 2006, the highest that figure has been since 2002?

Or, how that figure differs from the 13.5 percent delinquency rate in the subprime segment. Looking at the numbers, doesn't that mean 86.5 percent of people who have subprime mortgages are paying on time and almost 98 percent of regular borrowers are paying on time?

Well, well, well-look at the big brain on Mr. Drysdale over here. Let me tell you something the bank ain't gonna-the difference between subprime lending and regular lending is the difference between treating quarters like manhole covers and hundred dollar bills like pocket lint. You following me, Mrs. Hathaway?

No. And why are you calling me Mrs. Hathaway?

You have a similar bone structure. It's all in the cheekbones, pretty boy. Oh, and by the way-can you spot me a sawbuck 'til payday? I'll pay you back, I promise.

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